Dollars, presidents and rural utility financing

Mark Scheid_120814.jpgBy Mark Scheid, PE

I am always intrigued by history. I love watching the History Channel and I have turned the page of more than one history book. Yet I didn’t really understand the history that stands behind the 71-year-old company I work for. Yes, I have heard the story and probably told it several times, how Mel Ulteig founded the company in 1944 with a vision of electrifying the Midwest. What I didn’t fully grasp was the driving force of the Rural Electrification Administration (REA) in Ulteig’s early days.

According to the National Rural Electric Cooperative Association (NRECA) website, Executive Order No. 7037 was signed by President Franklin Roosevelt, establishing the REA, and a year later the Rural Electrification Act was passed and the lending program for the REA got underway. Not much more than a decade after, Mel started the company Ulteig Engineering and helped install 7,000 miles of transmission line that fell under this new REA program.

Every day the government makes decisions and does things that impact our lives and our businesses. In many cases, these are good things – roads getting funded, people in need being taken care of and, of course, new electric infrastructure being built. But sometimes the benefit isn’t so clear, and the response can be equally as puzzling. Recently, I have been tracking the public announcements that a large power cooperative has been making about buying their Rural Utility debt out with cooperative and private financing.

According to one article, “changes sought for federal rules administering the National Environmental Policy Act [NEPA] helped drive the decision.” The proposed NEPA rules could impact the effort to get financing and the amount of time it takes to get a project into construction. The article I mentioned goes on to reference several other cooperative utilities that have left behind their debt financed through the government Rural Utility program for similar reasons. I understand that many of these rules are put in place for sound reasons; however there are ripple effects that push through our industry. The added effort and increased time to get financing are no doubt providing new challenges for these organizations and will likely have cost implications for their members.

Cooperatives have always been cost-conscious for their membership, but as they seek out growth plans they will now need to add to the demands of being cost-competitive and highly reliable, with additional accountability to outside investors and banks. Reducing schedules and effective means of financing are going to play an even more critical role in project success than they already have. This has already created new opportunities for services such as project and program management.

Change in government policy created the environment for Mel Ulteig to start his business in 1944. Now, 71 years later, we are seeing cooperatives leaving behind the government programs that helped finance their beginnings and led to the start of Ulteig. Cooperatives are changing and adapting to new legislation and regulations that sometimes create hurdles, but also can create great opportunities. I am excited to be carrying on Mel’s tradition of supporting our clients in meeting today’s challenges in supplying electricity.